Prices of mass market property launches could hit record high
Prices of mass market property launches could hit record high as developers face cost constraints. ELEVATED costs and limited inventory may result in new benchmark prices in the private residential market this year, with the average price of some suburban project launches expected to be close to or exceeding S$2,000 per square foot (psf).
The cost of land, construction, and materials has risen, while the number of unsold units has decreased, particularly in the Outside Central Region (OCR) or suburbs. Rising interest rates will also increase the cost of financing for developers.
“We do anticipate suburban condo launches to see new benchmark prices, given the elevated land cost, which is a big component of selling price,” said Wong Siew Ying, head of research and content at PropNex Realty.
The average price of OCR launches, according to PropNex Research, will be between S$1,900 and S$2,300 per square foot. Prices for launches in the Core Central Region (CCR) could range from S$2,800 to S$2,900 psf and higher, while prices in the Rest of Central Region (RCR) could range from S$2,400 to S$2,700 psf.
According to Goh Boo Kui, contracts director at Unison Construction, labor and material costs have increased by 20-30 percent since the pandemic. Transportation costs have risen as well.
Construction costs for a suburban condo with 400-500 units, according to Kenneth Loo, executive director of Straits Construction, are currently above S$400 psf of gross floor area (GFA), depending on finishings. This is a significant increase from S$250-300 psf prior to the pandemic.
Meanwhile, buyers with plenty of cash are driving up demand, according to Lee Nai Jia, deputy director of the National University of Singapore’s Institute of Real Estate and Urban Studies (IREUS).
Dr. Lee added, however, that projects must be part of an integrated development, close to an MRT station, or located in a mature estate with a lack of new launches in order to achieve new benchmarks. They may also be located in areas where HDB prices are higher than in new estates.
The 99-year leasehold AMO Residence at Ang Mo Kio Ave 1, which is being developed jointly by UOL Group, Singapore Land Group, and Kheng Leong, could fetch an average selling price of S$2,000 to S$2,100 psf, according to PropNex.
GuocoLand’s 99-year leasehold Lentor Modern, a private residential project with commercial space on the ground floor, could fetch S$2,100 to S$2,200 psf on average. Both projects are set to debut in the third quarter of 2022.
When it opens in the second half of 2022, the 268-unit Sceneca Residence, part of a mixed-use development along Tanah Merah Kechil Link, could fetch S$1,900 to S$2,000 psf. MCC Land (Singapore), The Place Holdings, and Ekovest Development are developing the project.
Analysts disagree on whether such prices for suburban developments will be met with buyer resistance. According to Nicholas Mak, ERA’s head of research and consultancy, the rise in property prices is due to cost-push inflation rather than demand-led inflation. “Some buyers may be priced out,” he said, adding that buyers could always look to the HDB market instead.
Some buyers may opt out, particularly those who are equity-constrained or risk-averse, but those who can afford to take the plunge may do so for fear of being priced out later, according to Dr. Lee of IREUS: “These buyers are taking center stage, and we should see more of such behavior.”
According to OrangeTee & Tie CEO Steven Tan, some buyers may turn to real estate assets as an inflation hedge, while others may want to lock in interest rates before they rise further.
Tan also mentioned that inventory in the OCR is extremely low, which means that buyers looking for new launches have few options. “If cost is an issue, they must still opt for OCR.” Many people may be unable to obtain executive condominiums.”
According to ERA’s Mak, there were only 726 launched and unsold private housing units for sale in the OCR in April. This was less than the launched and unsold stock of 1,541 CCR units and 821 RCR units.
With prices in the OCR on the rise, this could prompt pricing in other regions to follow suit. “Pricing for the RCR and CCR would creep up,” IREUS’ Dr Lee predicted.
Tan of OrangeTee & Tie anticipates a chain reaction, noting that the price disparity between the three regions has been closing.
According to an OrangeTee report, upcoming launches in the RCR could start at S$2,200 psf. Prior to the pandemic, many new city fringe condos in Queenstown, Potong Pasir, and Eunos were launched at an average price of around S$1,800 psf, according to the report.
PropNex’s Wong, on the other hand, expects CCR prices to remain “relatively stable” in the face of significant unsold inventory in the CCR relative to the RCR and OCR.
“The recent healthy sales at Piccadilly Grand and [email protected] launches — both in the RCR — at an average price of S$2,150 psf and S$2,387 psf, respectively, show that there are still buyers willing to pay more than S$2,000 psf,” she added. She anticipates that genuine home buyers will drive demand, but that many buyers will “right-size their purchase” in response to rising interest rates.
Following the most recent cooling measures, Singaporeans and permanent residents purchasing second or subsequent properties now face a higher Additional Buyer’s Stamp Duty (ABSD), while foreign buyers now face a 30% ABSD. The CCR is well-liked by both foreign buyers and investors.
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